Clash Or Credit

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What's going on?

With one eye on securing a trade deal and another on looking like the winner, the US is thinking about removing tariffs on $112 billion worth of Chinese goods.

What does this mean?

The US-China trade war has cast a long shadow over the global economy lately, so any de-escalation in tensions should – at least for now – give it a bit more room to breathe. That newfound optimism might be why US stock markets hit record highs again this week. And the East has benefited too, with both Asian markets and the Chinese yuan on the rise. That marks a sharp about-turn from the jitters investors felt back in August, when the yuan was weakening and the US responded by labeling China a “currency manipulator”.

Why should I care?

For markets: Stocks before bonds.


Easing trade tensions have put stocks back on the map. Just look at the Chinese stock market, which is on track to be the best-performing major stock market of the year (sorry, Greece, we said major). And while bonds are also having a stellar 2019 following interest rate cuts from several major central banks, stocks look like they’ll benefit more from investors’ growing risk appetite. Indeed, some analysts think bond prices will fall and stocks will continue to rise over the next six months – drawing parallels between the current environment and the mid-90s, when the Federal Reserve also cut rates as an “insurance” measure.



The bigger picture: This is going to be a long ride.


Both the US and China are incentivized to get a phase-one trade deal done: the US president is looking to prop up his reelection prospects next year, while China is trying to speed up its slowing economy. But China is still growing three times faster than the US, and tensions between the two are likely to persevere – albeit maybe in different ways – as China continues to challenge the US’s dominance (tweet this).

Originally posted as part of the Finimize daily email.

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